# What is a Common Size Balance Sheet?

## Common Size Balance Sheet

A common size balance sheet is a financial statement that presents each line item on the balance sheet as a percentage of a common base figure, typically total assets. This approach helps in comparing the financial performance and position of different companies, regardless of their size, by standardizing the balance sheet and making it easier to analyze and compare financial ratios.

The common size balance sheet is particularly useful when comparing companies of different sizes within the same industry or analyzing the trends in a company’s balance sheet over time. It enables a more meaningful comparison by focusing on the relative proportions of various assets, liabilities, and equity items, rather than their absolute values.

To create a common size balance sheet, each line item is divided by the total assets and then expressed as a percentage. For example:

By converting each line item into a percentage, the common size balance sheet allows for a more straightforward comparison of a company’s financial structure and position over time or with other companies in the industry. It helps in identifying trends, understanding the composition of assets, liabilities, and equity, and evaluating a company’s financial health and stability.

## Example of a Common Size Balance Sheet

Let’s consider a hypothetical example to illustrate the concept of a common size balance sheet for two companies, Company A and Company B.

Here are the balance sheets for both companies:

Company A (in thousands):

• Current Assets: \$50,000
• Non-Current Assets: \$100,000
• Total Assets: \$150,000
• Current Liabilities: \$30,000
• Non-Current Liabilities: \$60,000
• Equity: \$60,000

Company B (in thousands):

• Current Assets: \$20,000
• Non-Current Assets: \$80,000
• Total Assets: \$100,000
• Current Liabilities: \$15,000
• Non-Current Liabilities: \$40,000
• Equity: \$45,000

To create common size balance sheets for both companies, we’ll divide each line item by their respective total assets and express the result as a percentage:

Company A – Common Size Balance Sheet:

• Current Assets: (\$50,000 / \$150,000) x 100 = 33.33%
• Non-Current Assets: (\$100,000 / \$150,000) x 100 = 66.67%
• Current Liabilities: (\$30,000 / \$150,000) x 100 = 20%
• Non-Current Liabilities: (\$60,000 / \$150,000) x 100 = 40%
• Equity: (\$60,000 / \$150,000) x 100 = 40%

Company B – Common Size Balance Sheet:

• Current Assets: (\$20,000 / \$100,000) x 100 = 20%
• Non-Current Assets: (\$80,000 / \$100,000) x 100 = 80%
• Current Liabilities: (\$15,000 / \$100,000) x 100 = 15%
• Non-Current Liabilities: (\$40,000 / \$100,000) x 100 = 40%
• Equity: (\$45,000 / \$100,000) x 100 = 45%

By converting the balance sheets into common size format, it’s easier to compare the financial structure and position of both companies, regardless of their size. For example, we can observe that Company A has a higher proportion of current assets and current liabilities, while Company B has a higher proportion of non-current assets and equity. This information can help investors, analysts, and other stakeholders better understand the companies’ financial health and stability, and make more informed decisions.